Commissioner of Income-tax (TDS) v. C. J. International Hotels P. Ltd
[Citation -2015-LL-0209]

Citation 2015-LL-0209
Appellant Name Commissioner of Income-tax (TDS)
Respondent Name C. J. International Hotels P. Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 09/02/2015
Assessment Year 1999-00
Judgment View Judgment
Keyword Tags retrospective amendment • beneficial shareholder • period of limitation • deeming provision • satisfaction note • deemed dividend • legal provision • co-operative
Bot Summary: Mr. Kamal Sawhney, senior standing counsel in support of the Revenue's appeal, argues that given the terms of section 201, no limitation can be imputed and that if Parliament had so intended like other instances in the Income-tax Act a specific period would have been engrafted. Equally, there are several provisions of enactment, i.e., sections 143(2), 147, 148 and 263, and even through introduction of specific provisions in section 153 of the Act, where the time limit is specifically prescribed. In these circumstances, the court had insisted that for the purpose of initiation of proceedings under section 201, the Assessing Officer has to act within four years. The judgment in NHK Japan to a certain extent was limited by the amendment to section 201 by substitution of section 201(3) with effect from April 1, 2010, by the Finance Act, 2009. Although the context of the dispute was in respect of recording of a satisfaction note as to the initiation of proceedings against third parties under the erstwhile section 158BD of the Act which did not prescribe the period of limitation and left it to the discretion of the Assessing Officer to decide on being satisfied that such proceedings were required to be initiated, the court limited such discretion in the following terms: In the result, we hold that for the purpose of section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages: at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; along with the assessment proceedings under section 158BC of the Act; and immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person. The second category specified under section 2(22)(e) of the Act, viz.


JUDGMENT judgment of court was delivered by S. Ravindra Bhat J.-Two questions have sought to be urged on behalf of Revenue in present appeals directed against judgment of Income-tax Appellate Tribunal. These are, firstly, to initiate proceedings against assessee in default who does not deduct tax and, secondly, on merits applicability of section 2(22)(e), in circumstances of case. These appeals concern assessment years 1999-2000, 2000-01 and 2001-02. Ms. Harjit Kaur, concededly shareholder of M/s. Pure Drinks (New Delhi) Ltd. had borrowed amounts from C. J. International Hotels Pvt. Ltd., i.e., assessee. Assessing Officer ("the AO") sought to bring them to tax under section 2(22)(e) reasoning that since she had more than 10 per cent. stake in assessee-company and that other conditions spelt out in section 2(22)(e) were satisfied, it had to be treated as deemed dividend. assessee contended in appeal that initiation of proceedings under section 201 was barred; it was contended on merits that Harjit Kaur was shareholder in M/s. Pure Drinks (New Delhi) Ltd. and could not be considered as shareholder in C. J. International Hotels Pvt. Ltd. other contention was that said individual could not be considered even as beneficial shareholder of assessee. Both contentions were accepted by Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal. Mr. Kamal Sawhney, senior standing counsel in support of Revenue's appeal, argues that given terms of section 201, no limitation can be imputed and that if Parliament had so intended like other instances in Income-tax Act specific period would have been engrafted. He also relied upon specific amendments made to secure section 201 by virtue of Finance (No. 2) Act, 2009 with effect from April 1, 2010, and other Finance (No. 2) Act, 2014 with effect from October 1, 2014. It was argued next that since shareholder was direct beneficiary and beneficial owner of shares of assessee, Assessing Officer acted correctly within jurisdiction in invoking section 2(22)(e). Counsel for assessee points out that ruling of this court as to period of limitation, i.e., CIT v. NHK Japan Broadcasting Corporation [2008] 305 ITR 137 (Delhi) and CIT v. Hutchison Essar Telecome Ltd. [2010] 323 ITR 230 (Delhi) concludes issue. In those judgments, two Division Benches consistently ruled that foundational requisite for initiation of proceedings under section 201 is period of four years if no limitation is prescribed. Revenue had contended that since these matters were carried in appeal by special leave to Supreme Court, issue was left open. In absence of compelling reasons, this court should follow ruling in NHK Japan (supra). So far as question on merits is concerned, learned counsel relies upon Division Bench ruling in CIT v. National Travel Services [2012] 347 ITR 305 (Delhi) and CIT v. Ankitech P. Ltd. [2012] 340 ITR 14 (Delhi) to say that requirement of section 2(22)(e) is fulfilled only if both pre-conditions are met with. It is evident from above discussion that assessee was sought to be proceeded against section 201 as one in default, after period of four years. This court is conscious that text of provision nowhere limits exercise of powers. Equally, there are several provisions of enactment, i.e., sections 143(2), 147, 148 and 263, and even through introduction of specific provisions in section 153 of Act, where time limit is specifically prescribed. At same time, this court in NHK Japan (supra) was of opinion that power to treat someone as assessee in default is too drastic, vague and oppressive since it is conditioned by some measure of limitation. In these circumstances, court had insisted that for purpose of initiation of proceedings under section 201, Assessing Officer has to act within four years. In NHK Japan, court did take note of judgment in State of Punjab v. Bhatinda District Co-operative Milk Producers Union Ltd. [2007] 9 RC 637. judgment in NHK Japan to certain extent was limited by amendment to section 201 by substitution of section 201(3) with effect from April 1, 2010, by Finance (No. 2) Act, 2009. This substitution was in turn amended with effect from April 1, 2014, by Finance (No. 2) Act, 2014. As result, provision which exists as on date is as follows: "201. (3) No order shall be made under sub-section (1) deeming person to be assessee in default for failure to deduct whole or any part of tax from person resident in India, at any time after expiry of seven years from end of financial year in which payment is made or credit is given." Secondly, section 201 itself was amended by introduction of sub-section (1A) with retrospective effect from April 1, 1966. provision underwent legislative changes on different occasions. decision in NHK Japan was rendered on April 23, 2008. Revenue's appeal was rejected on July 3, 2014. Although, Supreme Court had granted special leave and has apparently stated in its final order rejecting Revenue's appeal that question is left open, mere circumstance that Parliament did not spell out any time limit before it did eventually in 2009-and subsequently in 2014-would not lead to sequitur that this court's ruling in NHK Japan requires consideration. In that judgment, Division Bench had given various reasons, including application of rationale in Bhatinda District (supra). In NHK Japan, court had noticed that facts in Bhatinda District (supra) judgment concern exercise of jurisdiction by statutory authority in absence of specific period of limitation. court in Bhatinda District (supra) held as follows (page 642 of 7 RC): "It is trite that if no period of limitation has been prescribed, statutory authority must exercise its jurisdiction within reasonable period. What, however, shall be reasonable period would depend upon nature of statute, rights and liabilities thereunder and other relevant factors. Revisional jurisdiction, in our opinion, should ordinarily be exercised within period of three years having regard to purport in terms of said Act. In any event, same should not exceed period of five years. view of High Court, thus, cannot be said to be unreasonable. Reasonable period, keeping in view discussions made hereinbefore, must be found out from statutory scheme. As indicated hereinbefore, maximum period of limitation provided for in sub-section (6) of section 11 of Act is five years." More recently in CIT v. Calcutta Knitwears [2014] 362 ITR 673 (SC), Supreme Court had occasion to deal with correct position in law as to initiation of income-tax proceedings. Although context of dispute was in respect of recording of satisfaction note as to initiation of proceedings against third parties under erstwhile section 158BD of Act which did not prescribe period of limitation and left it to discretion of Assessing Officer to decide on being satisfied that such proceedings were required to be initiated, court limited such discretion in following terms (page 691): "In result, we hold that for purpose of section 158BD of Act satisfaction note is sine qua non and must be prepared by Assessing Officer before he transmits records to other Assessing Officer who has jurisdiction over such other person. satisfaction note could be prepared at either of following stages: (a) at time of or along with initiation of proceedings against searched person under section 158BC of Act; (b) along with assessment proceedings under section 158BC of Act; and (c) immediately after assessment proceedings are completed under section 158BC of Act of searched person." added reason why submission of Revenue is unacceptable is that had Parliament indeed intended to overrule or set aside reasoning in NHK Japan (supra), it would have, like other instances and more specifically in case of section 201(1A), brought in retrospective amendment, nullifying precedent itself. That it chose to bring section 201(3) in first instance in 2010 and later in 2014 fortifies reasoning of court. Accordingly, issue is answered against Revenue. So far as question on merits, i.e., applicability of section 2 (22)(e) goes we are of opinion that on both counts, Revenue has to fail. Concededly, individual Harjit Kaur was not shareholder of present assessee but rather shareholder of another concern which held shares in assessee-company. In Ankitech (supra) and later in National Travel Service, court underlines need to limit application of fiction which otherwise would follow its own path by stating as follows (page 35 of 340 ITR): "Further, it is admitted case that under normal circumstances, such loan or advance given to shareholders or to concern, would not qualify as dividend. It has been made so by legal fiction created under section 2(22)(e) of Act. We have to keep in mind that this legal provision relates to'dividend'. Thus, by deeming provision, it is definition of dividend which is enlarged. legal fiction does not extend to'shareholder'. When we keep in mind this aspect, conclusion would be obvious, viz., loan or advance given under conditions specified under section 2(22)(e) of Act would also be treated as dividend. fiction has to stop here and is not to be extended further for broadening concept of shareholders by way of legal fiction. It is common case that any company is supposed to distribute profits in form of dividend to its shareholders/members and such dividend cannot be given to non- members. second category specified under section 2(22)(e) of Act, viz., concern (like assessee herein), which is given loan or advance is admittedly not shareholder/member of payer company. Therefore, under no circumstances, it could be treated as shareholder/member receiving dividend. If intention of Legislature was to tax such loan or advance as deemed dividend at hands of 'deeming shareholder', then Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of arguments of learned counsel for Revenue would stand answered, once we look into matter from this perspective." Later, with respect to mandatory need to fulfil both pre-conditions which are conjunctive and not dis-conjunctive, as is now sought to be argued by Revenue, too, Ankitech (supra) was decisive (page 44 of 340 ITR): "The expression'shareholder being person who is beneficial owner of shares' referred to in first limb of section 2(22)(e) refers to both registered shareholder and beneficial shareholder. If person is registered shareholder but not beneficial then provision of section 2(22)(e) will not apply. Similarly, if person is beneficial shareholder but not registered shareholder then also first limb of provisions of section 2(22)(e) will not apply." It is, therefore, clear that in absence of any finding that Harjit Kaur owned shares in terms of section 201A or was beneficial owner in terms of such provision-on both counts-the findings being adverse to Revenue, no question of law arises. For above reasons, appeals cannot succeed and are dismissed accordingly. *** Commissioner of Income-tax (TDS) v. C. J. International Hotels P. Ltd
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